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Thursday, February 08, 2018 1:00 am

Editorial

Prevailing opinion

Study undercuts arguments made for wage repeal

In 2015, when then-Indiana Gov. Mike Pence was mulling a run for the presidency, he campaigned hard to get the common construction wage rule repealed by the legislature.

“Wages on public projects should be set by the marketplace and not by government bureaucracy,” Pence said. Getting rid of the 80-year-old law, he argued, would help local governments and schools struggling with property tax caps, and open “doors of opportunity” for small businesses interested in capturing construction contracts.

But repeal defied common sense. Would a measure that encouraged out-of-state contractors to underbid local companies by cutting the wages they paid to construction workers really benefit the Indiana communities where those local companies tried to do business?

The repeal certainly wasn't going to help northeast Indiana meet its crucial goals of attracting and retaining skilled workers and catching up with the rest of the state and nation on wages.

Passed in 1935 and revised in 1995, Indiana's common construction law, also known as a prevailing wage law, was designed to protect local workers and encourage quality workmanship by establishing consistent wages for public projects in a particular community.

The wages were arrived at not by a bureaucracy but by a committee that included a labor representative, a representative of the governmental agency directing the project and local citizens. That balance led committees to set rates that reflected the history of public-project wages in the community.

A study by the nonpartisan Midwest Economic Policy Institute suggests the repeal three years ago hasn't accomplished what Pence and his legislative allies believed it would. Reported last week by the Times of Northwest Indiana, the study asserts that – to no one's surprise – repeal led construction wages to drop by 8.5 percent. During the same period, construction wages rose by a combined 2.8 percent in Illinois, Michigan and Ohio, states that still have prevailing-wage requirements.

But rather than getting more for their money, Indiana taxpayers may have been getting less, as lower wage rates led to a less-skilled construction workforce. That, in turn, led to lower productivity than in the nearby states with prevailing-wage rules.

“While public projects in Indiana appear to cost 2.1 percent less per hour,” the study's authors told Times reporter Dan Carden, “contractors and taxpayers are paying workers that are 5.3 percentage-points less productive per hour. As a result, the relative decrease in worker productivity more than offsets any benefits from Indiana's lower wages.”

The study reached other conclusions that should surprise those who believed repeal of the common construction wage rule would create more robust competition. Before repeal, public works projects in 14 Indiana counties analyzed by the policy institute received an average of three bids. After repeal, the average was virtually the same – 2.9 bids per project. And rather than opening up the construction market to non-union businesses, “union businesses grew their market share post-repeal to 91 percent of market value, up from 87 percent,” Carden wrote.

Such counterintuitive results suggest lawmakers and Gov. Eric Holcomb could move past knee-jerk anti-unionism and consider implementing some new version of the common construction rule. It's too late for this session, of course, but the topic would be a great one for a summer study committee.